(Argus, 7.Oct.2020) — Ecuador hopes to sign a new $1.4bn oil-backed sovereign credit agreement with China next month that would restructure existing loans and encourage competition among Chinese oil trading companies, Ecuadorean oil minister René Ortiz told Argus.
The fresh Chinese loan would complement Ecuador’s recent $17bn bond debt structuring and a $6.5bn IMF loan approved last week.
The oil-backed credit will be syndicated by China Development Bank and will include a German financial institution as well, Ortiz said in an interview this week.
The new loan, which has been under negotiation for months, will restructure close to 200mn bl of outstanding oil supply still owed on the existing loans, but it will be signed by Ecuador’s government as a sovereign instrument, rather than state-owned PetroEcuador as the existing loans are, Ortiz said.
The August debt restructuring and IMF loan help Ecuador to “rebuild credibility and trust,” Ortiz said. “But they do not solve the fiscal problem. We need more money,” he said, citing in particular the pension liabilities associated with reducing the size of President Lenin Moreno’s austerity-minded government.
The new loan will still be secured by PetroEcuador’s long-term crude sales, but at formula-based market prices that allow for competition among the pool of Chinese trading companies, including PetroChina and Unipec. Thailand’s PTT, another one of Quito’s oil-backed creditors, could also form part of the restructuring, Ortiz said.
“There are more than three Chinese trading companies and they are competing among themselves, we can see that,” he added.
The planned sovereign debt instrument with China implies that much of Ecuador’s Oriente and Napo crude will stay off the spot market. In its last of four spot crude tenders this year, PetroEcuador sold 5.4mn bl of heavy sour Napo to Unipec in August at a $4.68/bl discount to Nymex WTI. Loadings of 15 shipments of 360,000 bl started in September and will run through December.
PetroEcuador’s three previous spot tenders this year were for medium sour Oriente grade.
“It is true that PetroEcuador can sell crude oil to any oil trading company. But not every oil trading company is ready to lend $1.4bn to the government,” Ortiz said.
“Now we have to see how the financial and oil markets develop,” he said, citing fluctuating interest rates and oil prices.
Ecuador, which left Opec in January as a belt-tightening measure, was particularly hard hit by the Covid-19 pandemic, the March collapse in oil prices and a series of mudslides and erosion that ruptured oil export pipelines in April.
PetroEcuador is currently holding a tender for the management and operation of its 110,000 b/d Esmeraldas refinery, while the government works toward opening the fuel market to imports. Most fuel subsidies were scrapped earlier this year.
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By Patricia Garip
